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New Zealand's consumer price index (CPI) fell by 0.2 percent in the quarter ending December 2014, prompting forecasts that annual inflation was likely to fall below the central bank's target band and quashing expectations of interest rate rises.
The government statistics agency said on Wednesday that the fall in the December quarter followed three consecutive quarterly rises of 0.3 percent and was driven by falling oil prices.
Petrol prices were down 5.7 percent over the quarter and the CPI excluding petrol was actually up by 0.1 percent, according to Statistics New Zealand.
By the end of the December quarter, petrol pump prices were 7 percent below the average price for the quarter, and at Jan. 16 were 17 percent below the average for the quarter.
Vegetable prices, which were down 14 percent following a mild winter, also contributed to the CPI fall.
"Lower prices for petrol and vegetables were partly countered by higher prices for international travel and housing-related costs," prices manager Chris Pike said in a statement.
The CPI rose by 0.8 percent in the year to the December quarter, the smallest annual rise since the June 2013 quarter.
Housing and household utilities was the main contributor to the rise, with newly built house prices up 5.4 percent, housing rentals up 2.1 percent and electricity up 3.6 percent.
Finance Minister Bill English said low inflation was helping households get ahead, with wages on average continuing to rise faster than the cost of living, but the government would keep spending tight and public sector workers could expect wage rises to be "restrained."
"Current economic conditions - stable growth, low inflation, more jobs and low interest rates - are helping New Zealanders to get ahead. Households with mortgages have the double benefit of low cost of living rises and lower mortgage servicing costs," English said in a statement.
However, a low-inflation environment also had implications for wage increases.
"Over the last four years, the average wage has increased from around 49,500 to 55,500 NZ dollars (37,778 to 42,357 U.S. dollars). Wages are expected to continue to outpace inflation, but if inflation remains low the dollar value of future wage increases may be smaller than previously expected," English said.
An Economic Note from the ASB Bank said the CPI had fallen below the expectations of the market and the Reserve Bank of New Zealand (RBNZ), which has a target band of 1 percent to 3 percent to control inflation.
"No matter which way you look at it, the Q4 CPI inflation reading was weak," it said, adding that headline inflation would be below 1 percent for most of 2015.
Given how long inflation had been low, it was increasingly unlikely the RBNZ would lift the official cash rate (OCR) this year and the ASB Bank expected no OCR increases "for the foreseeable future."
